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[This and the following article were written as a response to this thread, in which some ludicrously impractical suggestions were made on how to tackle inflation in the Gaian marketplace. It should be noted that Zahir has suffered extensive training as a practitioner of the Dark Arts of Economics, and while he holds no formal qualifications in the subject (having determined that Quantitative Methods in Economics is truly That Which Man Was Not Meant To Know), he can blag his way around various matters economical in a fairly convincing manner as long as he doesn't have to do any maths.]

Some people have suggested that the rate of inflation in the Gaian economy is a Bad Thing, and the admins or mods should Do Something About It. A favourite suggestion is for the admins/mods to set maximum prices for rare items and penalise the eeeville vendors who charge more than that price. Laying aside the fact that the mod team is stretched enough as it is regulating the forums and keeping things ticking along in some semblance of order, and what makes you think that they have time to play marketplace police, there are other, more compelling reasons not to engage in the practice of price-fixing. To wit:

Price-fixing sucks because it does not accurately represent the value that participants in the market place upon scarce items.

Currently, the Gaian economy is a free-market economy made up of vendors (people who have goods to sell) and buyers (people who have money with which to buy goods). It is assumed that the fundamental motivation of the vendor is to maximise profits - otherwise he's getting less than he could, and is depriving himself of some of his profits. That's just dumb. Conversely, the fundamental motivation of the buyer is to minimise cost - otherwise he's paying more than he needs to, and is depriving himself of funds which could be used to buy other stuff. That's also just dumb. And that's the way it works in the free market economy.

Prices are determined by finding a compromise between the vendors and buyers and their motivations - vendors might want to charge a bajillion gold for an item, but no bugger's going to want to pay a bajillion gold, so if the vendor really wants to sell an item, they're going to have to negotiate with the buyer to find a price that is mutually acceptable - and if some other buyer can outbid them, well, the vendor's going to sell to them instead.

Now, consider Soviet Russia. They had a command economy - the Party says that a loaf of bread costs X roubles, affordable for all! No one may sell bread for more than X, as that is eeeville capitalist profiteering! Also, the Party dictates how much bread should be made, according to calculations based on population, levels of nutrition, and so on and so forth. So theoretically, there should be enough bread to feed everyone, and everyone should be able to afford it.

Unfortunately for Soviet Russia, their economic understanding wasn't that good, or they chose to ignore it. They produced a certain amount of bread which, according to their calculations, should be more than enough to feed everyone - but at that price, people can afford plenty of bread. More bread, indeed, than is currently on the market, because bread is a finite resource. So they got big ********' queues of hundreds of people chasing after a few dozen loaves of bread. Everyone can afford it, so the only way for the buyer to ensure they get their bread is to be at the front of the queue when the bakery opens. Sure, the first few dozen people in the queue get their loaf of bread for X roubles, but the rest? s**t out of luck, comrades, no bread left today.

Likewise, donation items on GAIA Online are a finite resource. Say you set the price of an item at X gold. If you have buyers who would be willing to pay more than X gold for it, they'll snap it up and consider it a bargain! Woohoo, they got the item for a price lower than they feel the item is worth! Aces! And are they ever going to sell that item? s**t no, because it's worth way more than a measly X gold!

So rather than having donation items circulating back onto the market when the market price rises to the point at which the owner would be willing to sell it, items disappear from the market, and stay disappeared. So while the price might be X gold, which is relatively affordable to all, you can't get that item because no ******** willing to sell it. So your chance of getting hold of that item drops from slim to zero.

Unless, like in Soviet Russia, you go to the black market, where Supply and Demand are gods, and the Invisible Hand sets the price of an item! Here, people are willing to sell their rare items - for much much more than X gold, of course, but let's see you try and find anyone selling that item for X, you schmuck. Ha. ninja

So, to strip it down to its basics and give an example pertinent to GAIA Online:

There are more people who want a NM Scarf than there are currently NM Scarves on the market.

Therefore:

Not everyone who wants a NM Scarf will be able to get one.

There is no ******** way you can change this fact, just as there is no ******** way you will be able to come up with a plan whereby everyone who wants a NM Scarf can have one. No matter how much you bleat about unfairness, justice, greed, avarice, selfishness or charity, it is not going to happen.

So, given that it's not possible to wave a magic wand of post-scarcity economics and make everyone happy and satisfied, a free market economy is the next best thing. You've got a chance, no matter how slim, of getting the item you want. You just need to work for it. Can't face the prospect of posting, polling, begging and bumping your way to 70 million gold for a Halo? Obviously you don't want it enough, so bad luck. Someone else might want it that much, but you'll just have to try something more attainable.



[Coming up in Part II: Why Inflation Happens, And How To Fight It.]